[Robert Reich] States and global corporations

A Senate report criticizes Apple for shifting billions of dollars in profits into Irish affiliates where its tax rate is less than 2 percent, yet a growing chorus of politicians call for lower corporate taxes in order to make the U.S. more competitive.

The seeming contradiction is explained by the simple fact that global capital is gaining enormous bargaining power over nation states.

Global companies are not interested in raising living standards. Their only goal is to maximize returns to their investors. “We don’t have an obligation to solve America’s problems,” said an Apple executive last year. “Our only obligation is making the best product possible.” (He might have added “in order to make as much money as possible.”)

Such single-mindedness is abetted by a new wave of advanced software applications combined with enormous computing power, all available on the Internet in such a way as to enable companies to shift resources almost anywhere on earth at the speed of an electronic impulse.

Not only does money move immediately to wherever it can summon the highest return and be subject to the least tax, but jobs can be dispatched almost as quickly to wherever workers get the lowest wages for the most output.

Nations are ever more dependent on global capital, as “brick and mortar” investments in plant and equipment (requiring commitment to a particular geographic location) are replaced by intellectual capital and portfolio investments that are essentially rootless.

National dependence has increased as workers are displaced from assembly-line and routine service jobs (bank tellers, telephone operators, petrol station attendants); skilled jobs are replicated by software (brokers, accountants, insurance claims adjusters); and even higher-level professionals are threatened. (How long before doctors are replaced by diagnostic software and professors by online lectures?)

All this, in turn, is putting greater pressure on politicians to attract global capital, creating a fierce race to the bottom.

Effective tax rates on global companies and wealthy individuals are declining almost everywhere; regulations are being dismantled (not even the worst financial disaster since the 1930s has produced much by way of new financial rules); government subsidies to corporations are growing; and real wages are dropping.

In the U.S. and other rich nations, the percentage of gross domestic product going to wages continues to decline while the percentage going to profits steadily increases. Almost all the economic gains in the U.S. since the Great Recession have gone to the wealthiest 1 percent, who own the lion’s share of financial assets, while the bottom 90 percent has become poorer.

Individual states have embarked on their own races to the bottom, seeking to lure investments and jobs ― often from neighboring states ― with lower taxes, higher subsidies, reduced regulation and lower real wages.

But these trends are not inevitable. One way for nations (as well as individual states) to regain some bargaining leverage over global capital would be to stop racing against each another and join together to set terms for access to their markets.

After all, global capital depends on consumers, and access to large consumer markets such as the United States and the European Union is essential if global capital is to earn a healthy return.

Why should Apple have access to U.S. consumers, for example, if Apple refuses to pay its fair share of taxes to finance the infrastructure and education that Americans need to improve their living standards? Americans could buy from one of Apple’s competitors instead.

Likewise, it makes no sense for states or provinces within any nation to compete against one other for jobs and investment; such races only further strengthen the hand of global capital and reduce the bargaining power of the nation. These contests don’t produce net new jobs or investment but only move the jobs and investments from one locale to another and should be prohibited by federal law.

Similarly, the EU could be a bargaining agent for its citizens if it were to condition access to its hugely valuable market on paying taxes in proportion to a global corporation’s EU earnings, as well as making investments (including research and development, and jobs) in similar proportion.

Any move toward enhancing the power of nations or groups of nations relative to global corporations will surely provoke fierce resistance. But this doesn’t make the goal less important; it just makes it difficult to achieve.

By Robert Reich

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of “Beyond Outrage,” now available in paperback. He blogs at www.robertreich.org. ― Ed.

(Tribune Media Services)